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Perry Eidelbus,Der Eidelblogger

Westchester,New York

Friday, September 23, 2005

Liberals' double standards

Have you heard what Democrats working for Sen. Charles Schumer at the Democratic Senatorial Campaign Committee tried to do here in my home state of Maryland to bring down Republican Lt. Gov. Michael Steele?

Steele, a rising star in the party, is considering a Senate bid. Two of Schumer's staffers, including a former researcher for David Brock's Media Matters, obtained Steele's credit report by using his Social Security number, which they got from public documents. Under federal law, it is illegal to knowingly and willfully obtain a credit report under false pretenses.

There has been no outcry from privacy advocates, the ACLU, the champions of clean campaigns, or any major MSM editorial board. Needless to say, if it had been Republicans involved in this outrageous scheme and the target had been a liberal minority politician, it would be a front-page NYTimes scandal. The Times (surprise, surprise) has yet to cover the story, but other local NY papers are hammering the Schumer angle.

Clearly a very serious crime may have been committed, but it's largely being ignored by the mainstream media. Contrast this with the insider trading allegations being hurled at Bill Frist, which Professor Bainbridge has been detailing. He also gave a very lengthy explanation of insider trading a couple of days ago, with analysis of Frist's situation. [Edit: I originally wrote, "which Professor Bainbridge has been top of," which might imply he's among those hurling allegations. The Professor clearly is not, because his dissection has been very neutral.]

However, the more I read about it, the more I see another Rovegate, i.e. allegations about nothing. From the AP:

WASHINGTON - When Senate Majority Leader Bill Frist asked a trustee to sell all his stock in his family's hospital corporation, a large-scale sell-off by HCA Inc. insiders was under way.

Shares of the Nashville, Tenn.-based hospital company were near a 52-week peak in June when Frist and HCA insiders were selling off their shares — just about a month before the price dropped.

Information about the insiders' moves was publicly available through disclosures required by the Securities and Exchange Commission.

About 2.3 million shares, worth about $112 million, were sold by HCA insiders from January through June, with sales getting larger as the spring wore on, said Mark LoPresti of Thomson Financial. In May and June, 770,629 shares were sold for total gains of $42 million, he said.

The sales, which included moves by Hospital Corporation of America's chief executive, treasurer, senior vice president for government programs and several directors, were among the largest insider selloffs analysts had seen, LoPresti said. Many officers made their largest trades ever in April, only to top them again in May and June, LoPresti said.

Meanwhile, HCA shares continued a steep climb that would ultimately take the price up 56 percent from October 2004 to July 2005, peaking in late June, LoPresti said.

But insider selling is sometimes seen a sign of looming trouble. Uninsured patient admissions were rising faster than those of insured patients, federal reimbursements were declining in real terms and payments did not keep up with cost increases. LoPresti himself discussed the insiders' moves on an April 11 broadcast on the cable channel CNBC.

Shares of HCA peaked June 22 at $58.40 and then began a slide that would drop the stock almost 16 percent by mid-July. They have still not recovered, closing Thursday at $45.90.

On June 13, Frist asked his trustees to sell his HCA holdings, as well as those of his wife and children. Letters from his trustees on July 1 and July 8 confirmed the sales, said Frist spokeswoman Amy Call.

The value of his stock at the time of the sale was not disclosed. Earlier this year, he reported holding blind trusts valued at $7 million to $35 million.

Frist, R-Tenn., widely considered a potential presidential candidate in 2008, ordered the stock sold to avoid the appearance of a conflict of interest, Call said. The senator declined to comment Thursday.

For years, Frist, a heart surgeon, was criticized for holding stock in the nation's largest for-profit hospital chain while directing legislation on Medicare reform and patient issues. HCA was founded by his father, the late Thomas Frist Sr.; and his brother, Thomas Jr., is a director and leading stockholder.

His office has consistently deflected criticism by noting that his assets were in a blind trust and not under his active control.

The Senate Ethics Committee has cleared Frist several times to work on health care-related legislation, saying as recently as April 2004 that because neither he nor his family had a controlling interest in HCA, he could participate at his own discretion.

Under Senate ethics rules, senators can directly order the sale of any asset known to have been in the trust before the metaphorical curtain was drawn. The senator also can communicate in writing matters of concern, including "an interest in maximizing income or long-term capital gain."

That is not how blind trusts normally work, said David Becker, who was general counsel at the SEC from 2000 to 2002. To avoid potential insider-trading conflicts, the beneficiary usually has no knowledge or participation in investment decisions.

If Frist was allowed to ask for stock to be sold, "the question here is, How blind is blind?" Becker said.

The trustee of Frist's personal holdings, Kirk Scobey Jr., declined to comment except to say that, in general, the owner of a trust "can direct the elimination of a holding he or she originally contributed to the trust." Scobey is president of Nashville-based Equitable Trust Co.

The Foundation for Taxpayer and Consumer Rights, a California-based group, called for the SEC to investigate the majority leader's financial relationship with his brother. The group, which has wrangled with Frist over medical malpractice, has long called for Frist to divest himself of the HCA stock and for an inquiry to the ethics committee.

"If there was any sort of insider information that caused Frist to use ethical considerations as a cover, we think the SEC needs to investigate," said Carmen Balber, the group's consumer advocate.

I'm immediately suspicious of any group that claims to be for any "rights" other than the unalienable variety. Not surprisingly, the Foundation for Taxpayer and Consumer Rights is a "progressive" organization, i.e. far-left. For evidence, look at their claim that high gas prices, pre-Katrina, are caused by oil company profiteering, including allegations that oil companies intentionally keep low reserves. This is their revenge for all the previous political conflicts with Frist. There's just one problem: it's highly unlikely that Frist used any insider information. He shouldn't have needed it to know to sell his stock!

"Shares...were near a 52-week peak in June when Frist and HCA insiders were selling off their shares — just about a month before the price dropped." But the article later admits the sell-off, which was perfectly allowed by SEC regulations, had started in January. That still doesn't stop the article from throwing around "insider," a subtle insinuation (however false) that illegal things were going on. But think about it: had the "insiders" used any "insider information," they'd have made much more money by holding onto their shares until closer to the peak, then selling. They profited, but not as much had they refrained from selling their holdings for a few months.

If you examine HCA stock's history for the last 12 months, it may not have recovered from its peak, but you'd have done more than pretty well to have bought it a year ago, when it was about $38 per share. It closed Thursday at $45.90; right now it's at $46.06 in after-hours trading. While it's been falling in recent days, it's hardly collapsed, especially compared to September 2004. But the liberal media has to make things sound bad: "The stock hasn't recovered from the peak, but all these 'insiders' sold their stock beforehand! They must have known something!"

Actually, reasonable and prudent investors had several months of publicly digestible information. The big clues: LoPresti's warning on CNBC, HCA's financials (plus industry news) that were not predicing a rosy near-future, and company officials subsequently starting to sell ("rats fleeing a sinking ship," in a way, which apparently was still within SEC rules, otherwise they certainly would been charged by now). There's no Enron or WorldCom here: HCA made all required filings with the SEC, with no figure-fudging. (If they did, why didn't they "fix" the company's near-future prospects from looking so disappointing?) Investors' worries were manifested in the stock's fairly flat period from mid-May to early June, ending a five-month climb. That happens to be when HCA "insiders" were selling the most stock, but why is that so wrong or at all unusual? Like any other intelligent investors would do, they guessed the run was over, and they elected to cash out.

Kirk Scobee, Jr., Frist's personal holdings trustee, was absolutely correct to give only a general comment. Had he said anything specific pertaining to his client, he could have gotten in a great deal of trouble. But it appears that Frist was like any regular investor who paid attention to company news: he ordered his trustee to sell the stock when he had felt it was higher than the company's performance warranted. While not "normal" for a blind trust, it is still permissible, including within Senate rules.

And just what does the Foundation for Taxpayer and Consumer Rights want Frist to do? They wanted him to sell his HCA stock, which he did eventually, but now they're accusing him of using insider information.

You can't win with liberals, not when they employ double standards. I hope a federal prosecutor goes after Schumer's Wonder Twins, but I fear they'll not be punished severely if convicted (probation, fines, but no jail time). Frist, however, could be ruined, even if nothing goes to trial, if the American people believe the tripe being told about him. I should add that I'm not the most knowledgeable about Senate ethics rules, so I'm refraining from that aspect, although he was cleared by a committee to work on health care legislation. But insofar as actual insider trading, I see no evidence for it.

Update: the Professor's second blog entry on Frist, made yesterday, has a comment where someone basically said what I have here. Just for the record, I hadn't seen it till this evening.

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"You are not to inquire how your trade may be increased, nor how you are to become a great and powerful people, but how your liberties can be secured; for liberty ought to be the direct end of your government."
- Patrick Henry, 1788